13 Apr 11 Exposure drafts released: Improving the taxation of trust income
On 16 December 2010, the Government announced that it would introduce amendments before 30 June 2011, so that beneficiaries can continue to use the primary production averaging and farm management deposits provisions in a loss year.
In media release No 2011/052, issued 13 April 2011, the Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, announced the release, for public consultation, of exposure draft legislation implementing these amendments.
In a separate announcement made on 4 March 2011, the Government released a discussion paper that canvassed options to implement the recommendations made by the Board of Taxation to:
- Better align the concept of "income of the trust estate" with 'net income of the trust estate'
- Enable the streaming of capital gains and franked distributions.
In relation to the first of these proposed amendments, the Assistant Treasurer's noted that on 6 April 2011, he announced that the Government had decided to defer consideration of the proposal to better align the concept of "income of the trust estate" with "net income of the trust estate" to the broader update and rewrite of Division 6 of Part III of ITAA 1936 (Division 6).
"However, the Government is aware that if there is no change to address the alignment problem, potential opportunities for tax manipulation would exist until the rewrite becomes law, " Mr Shorten said.
In order to address these opportunities, the Government will introduce specific anti-avoidance rules to target the use of low tax entities, especially exempt entities, to reduce the tax payable on the taxable income of a trust.
"These rules are required to address the potential opportunities for tax manipulation that would otherwise exist until the rewrite becomes law, and will apply for the 2010-11 and later income years," Mr Shorten said.
Mr Shorten said that these specific anti-avoidance rules will be reviewed as part of the broader update and rewrite of Division 6.
Mr Shorten said that the exposure draft legislation introducing the streaming of franked distributions and capital gains as well as the targeted specific anti-avoidance rules is substantially, but not fully complete.
"I have decided to release this legislation early to ensure that interested stakeholders have the maximum opportunity to comment on the core changes proposed in this legislation," Mr Shorten said
Broadly, these changes will ensure that capital gains and franked distributions (and their attached franking credits) are taken out of Division 6 of Part III of the Income Tax Assessment Act 1936 (Division 6) and taxed in accordance with the amended operation of Subdivisions 115-C and 207-B.
The explanatory materials accompanying this exposure draft legislation will be released shortly. An advanced summary of the explanatory materials has been released in the interim.
The closing date for submissions on both exposure drafts is Friday, 29 April 2011.